By Bill Ferguson

In early April, luminaries from corporate America, Wall Street and regulatory agencies met in Washington, D.C. to discuss the burdens facing executives and directors in today’s post-Sarbanes Oxley Compliance (SOX) world. Warren Buffet lamented that managers and directors are spending so much time and energy focused on regulatory process. “We’re doing a lot of things that I regard as unnecessary. Sarbanes-Oxley has changed the complexion of things that go on in our boardroom. It detracts from more important board issues,” he says.

Certainly, times have changed for directors of United States companies. Serving on the board of a public company entails more exposure and liability than ever before. While some executives and directors rail against the new restrictions, investor advocates praise the new level of scrutiny placed on company leaders and cite recent outsized CEO termination payments and accounting scandals as evidence that many boards remain derelict in their duties to shareholders.

Despite some protests, many boards are now turning their attention toward ensuring that management has the right strategy in place for long-term growth.

One of the most significant changes seen among our clients is a renewed focus by directors on company strategy. In FPL Associates’ report Leading the Enterprise 2007, a study of over 150 top executives and board members across the real estate and related industries, top board issues in 2007 were corporate performance and oversight of strategy. The most important concern is creating shareholder value.

However, boards are closely watching executive compensation and compliance with new reporting standards. Interestingly, executives generally rank these matters higher than directors, illustrating the scrutiny regarding their compensation in today’s environment.

This is particularly true among REITs because reporting requirements for executive compensation practices among public companies have been recently expanded.

As boards focus more on their companies’ long-term strategies, they’re also spending more time addressing CEO succession planning and CEO/board relations. Directors are becoming more actively involved with the formation of close partnerships with management and the preservation of continuity among company leadership.

While companies are handling new governance requirements and regulatory issues, there’s an expectation that directors will be required to dedicate a significant amount of time to preparing for and attending meetings. Real estate industry experience is highly valued, as directors are expected to take a more active role in shaping strategy.

Companies across the real estate industry are committed to bringing women and minorities onto the board. Interestingly, many public REITs are particularly dedicated to diversity, especially those in the retail, multifamily, hospitality and senior housing sectors. These companies are generally characterized by highly diverse employee populations as well as diverse customer bases, making diversity at the board level particularly important.

Clearly, board priorities are shifting. While Congress continues to address compliance and governance issues, directors themselves are beginning to return their focus to where many would argue it belongs: on strategy, growth and value creation for shareholders.

Most Critical Issues for REIT Boards in 2007   Issue Average Score (1 to 5 scale) All REIT Respondents REIT Executives REIT Directors CEO succession 3.41 3.51 3.33 CEO/board relations 3.73 3.74 3.67 Change of control 2.73 2.95 1.83 Executive compensation 4.20 4.26 3.83 Corporate governance/corporate accountability 3.98 4.00 3.83 Corporate performance 4.64 4.67 4.50 Federal & state regulation 2.18 2.18 2.17 Liability insurance 2.36 2.39 2.17 Director nomination/succession 3.18 3.21 3.00 Relations with shareholders 3.30 3.16 4.17 Relations with other constituencies 2.98 2.84 3.83 Oversight of corporate strategy 4.23 4.26 4.33 Deal approval 3.16 3.11 3.50 Portfolio management 2.77 2.76 3.33 Source: Leading the Enterprise 2007TM, FPL Advisory Group   Most Important Attributes for Potential REIT Board Members in 2007   Attribute Average Score (1 to 5 scale) All REIT Respondents REIT Executives REIT Directors Industry experience 3.50 3.50 3.50 CEO experience 3.30 3.34 3.00 Public company experience 4.07 4.16 3.50 Strategic planning experience 3.73 3.71 3.83 Government contract experience 1.75 1.79 1.50 Female 3.02 3.08 2.67 Minority 2.89 2.92 2.67 Legal experience 1.75 1.66 2.33 Professor/academic 1.75 1.71 2.00 Seniority in another industry 3.07 3.11 2.83 Prior board experience 3.48 3.53 3.17 Geographic diversity 2.45 2.42 2.67 Local community member 1.91 1.87 2.17 Wall Street/investment banking experience 2.23 2.11 3.00 Time & personal commitment 4.13 4.16 4.00 Personal attributes (i.e., intelligence, integrity, personality) 4.80 4.82 4.67 Source: Leading the Enterprise 2007TM, FPL Advisory Group